Gazprom Aiming for LNG Market in 2005

Gazprom wants to begin trading liquefied natural gas in 2005 to learn more about the business before launching its own LNG production in the next decade, a top executive said Monday.

"We have to be present on the market before the first ships with our own LNG set sail. We have opened an office in Britain that will coordinate our LNG strategy," the head of Gazprom export arm Gazexport, Alexander Medvedev, said in an interview.

Gazprom, the world's largest gas producer, which supplies Europe with a quarter of its gas needs via major pipelines, is keen to supply gas to U.S. markets, but as yet has no LNG facility to super-cool its gas for tanker shipment.

Gazprom is in talks with oil major BP to swap its pipeline gas in Europe for BP's LNG and begin U.S. deliveries as early as 2005. That would allow it to gain experience in dealing with and selling LNG.

"We are currently focusing on supplies to the United States but could also consider other markets," Medvedev said.

"The scheme with BP is the most advanced, but we are also talking to a number of other partners."

BP has LNG projects in Trinidad and Tobago, Indonesia, Egypt and Algeria, and may want to exchange the product for Gazprom's pipeline gas in Europe. Medvedev said other international majors had also shown interest.

"Sometimes, [majors] want to obtain the gas in places where we would not want to see them," he said.

"It will be easier in places where they are already present, tougher in places where they are not present so far. But there could be some factors which may prompt us to change our mind."

"And you also have to take into account the ongoing gas markets liberalization in Europe."

By 2009, Gazprom wants to have its own LNG terminal in the Baltic port of Ust Luga near St. Petersburg, which could receive output from existing pipelines.

The other option would be to construct a liquefaction plant nearby that would use natural gas from the giant offshore Shtokman field in the arctic Barents Sea.

LNG is gas cooled to minus 259 degrees Fahrenheit (minus 162 Celsius) into a liquid, which shrinks to less than 1/600 of its original volume. Once it arrives at a re-gasification terminal in special tankers, it is returned to a gaseous state and fed into pipelines.

BP and Gazprom's relationship is not limited to the LNG business, but may also include the joint development of gas fields in east Siberia and supplies to Asia.

BP controls the huge Kovykta gas field in east Siberia via its Russian vehicle TNK-BP.

It wants to build a massive pipeline to China from the field, but the project stalled a few years ago after Russia made Gazprom coordinator of the development of the region, as well as Russia's gas export strategy to Asia.

The monopoly has several gas fields in the region and plans to bid for more deposits. It will also merge with state oil firm Rosneft later this year and gain new deposits in east Siberia and the remote eastern island of Sakhalin.